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2016 (1) TMI 978 - ITAT CHANDIGARH

2016 (1) TMI 978 - ITAT CHANDIGARH - TMI - Registration under section 12A cancelled - Held that:- On perusal of the order of the learned Commissioner of Income Tax for cancelling the registration, we see that at the beginning of the order as well as at every place while concluding his finding, the learned Commissioner of Income Tax has referred to cancellation of registration w.e.f. assessment year 2009-10 onwards. However, since the amendment to section 12AA(3) of the Act has been specifically .....

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tion 12A of the Act.

Two basic requirements for cancellation of registration as provided under section 12AA(3) viz, the findings of the CIT to the effect that the activities of the assessee are not genuine or the activities are not being carried out in accordance with the objects on the basis of which registration under section 12A of the Act was granted to it, have also not been fulfilled in this case. CIT(A) has nowhere given a finding in this regard. It is not the case of the Commi .....

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e assessee is directed against the order of learned Commissioner of Income Tax-II, Chandigarh dated 20.6.2012 passed under section 12AA(3) of the Income Tax Act, 1961 (in short 'the Act') cancelling the registration under section 12A from assessment year 2009-10 onwards. 2. Briefly, the facts of the case are that the registration under section 12A of the Act was granted to the assessee vide order dated 27.3.1998 by the Commissioner of Income Tax, Chandigarh. The assessment of the assesse .....

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gistration granted to it under section 12A of the Act. On receipt of a show cause notice dated 15.3.2012 by the Commissioner of Income Tax proposing to cancel the registration under section 12A of the Act, it was submitted by the assessee that the registration under section 12A of the Act was also cancelled earlier by the Commissioner of Income Tax-II, Chandigarh vide order dated 31.3.2009 on the grounds that the activities of the assessee were not charitable and that the said order has become s .....

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nder the un-amended provisions of section 12AA of the Act vide its order dated 27.8.2009. The learned Commissioner of Income Tax found himself not in agreement with the submissions of the assessee. He observed that the I.T.A.T., Chandigarh Bench allowed the appeal of the assessee holding that the order passed by the learned Commissioner of Income Tax under section 12AA(3) of the Act was unsustainable in law for the reason that the power for withdrawing registration was effected in section 12AA(3 .....

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ent in section 12AA(3) of the Act with effect from 1.6.2010, which provides that registration granted under section 12A of the Act be also covered for cancellation of registration by the Commissioner of Income Tax. By virtue of such amendment in section 12AA(3) of the Act w.e.f. 1.6.2010, the Commissioner of Income Tax has been empowered to consider cancelling registration granted under section 12A of the Act. 3. On the merits of the case, the learned Commissioner of Income Tax reproduced the or .....

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haritable organization. (ii) On account of amendment in section 2(15) of the Act, the assessee has lost the status of charitable organization as the said section is applicable to sports association and is not applicable to educational institutions. (iii) On account of amendment in section 2(15) of the Act, the assessee has lost the status of charitable organization as all its activities are being carried on commercial line for cess, fee or other consideration. (iv) The assessee society has lost .....

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rofits with no element of charity in such activities. The learned Commissioner of Income Tax also held that the assessee does not qualify to be regarded as a charitable society for the reasons discussed in detail by the earlier Commissioner of Income Tax in order dated 31.3.2009. Since the activities of the assessee fall in the category of "advancement of any other object of general public utility" and this phrase as provided in section 2(15) does not now constitute a charitable purpos .....

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While arguing before us, the learned counsel for the assessee made two fold submissions. His first contention was that an amendment has been brought on the Statute by the Finance Act, 2010 in the provisions of section 12AA(3) of the Act, whereby power has been given to the learned Commissioner of Income Tax to cancel registration under section 12A of the Act., however, the said amendment cannot be construed to be operative retrospectively. For this, copy of the explanatory notes to the provision .....

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that he intends to cancel the registration from assessment year 2009-10 onwards, which is not as per law. 6. The second contention raised by the learned counsel for the assessee was that the only reason given by the learned Commissioner of Income Tax while withdrawing the registration granted under section 12A of the Act is the amendment brought on the Statute by the Finance Act, 2008 in section 2(15) of the Act. It was stated that the detailed analysis made by the learned Commissioner of Income .....

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d counsel for the assessee was that the purpose of proviso to section 2(15) of the Act is to hit any assessee only to the extent that the assessee will not be eligible for exemption under section 11 of the Act, which has to be verified by the Assessing Officer on yearly basis during the assessment proceedings. The mere fact that the assessee has been granted registration under section 12A of the Act or 12AA of the Act as a charitable institution will have no bearing on the denial of registration .....

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learned Commissioner of Income Tax and stated that in view of the amendment to section 2(15) of the Act and the detailed discussion made by the learned Commissioner of Income Tax, the assessee has certainly lost its character of being a charitable organization. Therefore, the order passed by the learned Commissioner of Income Tax is valid and as per law. 8. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material av .....

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sessee holding that the order passed by the learned Commissioner of Income Tax under section 12AA(3) of the Act was unsustainable in law for the reason that the power for withdrawing registration was effected in section 12AA(3) of the Act by Finance (No.2) Act, 2004 w.e.f. 1.4.2004 only to the entities registered under section 12AA of the Act and could not operate to withdraw or cancel the registration granted under section 12A of the Act. In holding so, the Tribunal relied upon the decision of .....

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held that the provisions of section 12AA(3) were not applicable to registration granted prior to 1.10.2004 as the provisions of section 12AA(3) of the Act were introduced w.e.f. 1.10.2004 and the same cannot be invoked retrospectively. Thus, the I.T.A.T., Pune Bench negated the applicability of section 12AA(3) of the Act in respect of registration granted under section 12A of the Act. The learned Commissioner of Income Tax in second round proposed to cancel the registration granted to the asses .....

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ommissioner of Income Tax did not have any power to do so has no bearing on the power of the learned Commissioner of Income Tax after the said amendment. However, we also see that the amendment to section 12AA(3) of the Act giving power to the Commissioner of Income Tax to cancel the registration granted under section 12A of the Act has been conferred by the Finance Act,. 2010, which explicitly provides that the said powers are available to the Commissioner of Income Tax w.e.f. 1.6.2010 and the .....

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Section 12AA(3) previously provided that if the activities of the trust or institution are found to be non-genuine or its activities are not in accordance with the objects for which such trust or institution was established, the registration granted under section 12AA can be cancelled by the Commissioner after providing the trust or institution an opportunity of being heard. 7.2 The power of cancellation of registration is inherent and flows from the authority of granting registration. However, .....

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pplicable with effect from 1st June, 2010 and shall accordingly apply for assessment year 2011-12 and subsequent assessment years. 10. On perusal of the order of the learned Commissioner of Income Tax for cancelling the registration, we see that at the beginning of the order as well as at every place while concluding his finding, the learned Commissioner of Income Tax has referred to cancellation of registration w.e.f. assessment year 2009-10 onwards. However, since the amendment to section 12AA .....

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r of Income Tax does not get the power to withdraw or cancel the registration, we are guided by a latest order of the Amritsar Bench of the I.T.A.T. in the case of Kapurthala Improvement Trust v. CIT [2015] 60 taxmann.com 301 (Amritsar-Trib), whereby it has been held that the consideration of first proviso to section 2(15) of the Act has no role to play in matters relating to registration of a trust or institution under section 12A of the Act in respect of granting or declining of registration o .....

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12AA(3) for cancellation of registration already granted is very limited in scope in as much as it can only be invoked only when (i) that the activities of the trust are not genuine, and(ii)that the activities of the trust or the institution are not being carried out in accordance with the objects of the trust or the institution. Section 12AA(3) specifically provides that when the CIT "is satisfied that the activities of such trust or institution are not genuine or are not being carried out .....

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he facts of this case but then such a factor cannot warrant or justify the powers under section12AA(3)being invoked. We, therefore, uphold the grievance of the assessee that the action of the learned Commissioner, in withdrawing the registration under section 12AA(3), was well beyond the limited scope of the powers conferred on him by the statute. The assessee, therefore, must succeed in the appeal for this short reason alone. 10. There is, however, a much more fundamental a reason for the asses .....

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even if otherwise permissible, of a registration. A close look at the scheme of the Act would unambiguously show this aspect of the matter. 12. On a closer look at the said order of the I.T.A.T., Amritsar Bench, we find that the proposition so laid down by the I.T.A.T., Amritsar Bench is based on the following reasons : (i) The scope of powers of the Commissioner under section 12AA(3) for cancellation of registration already granted is very limited in scope in as much as it can only be invoked o .....

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rom the riders in the definition of charitable purposes' is that rider set out therein, under first proviso to section 2(15), can only come into play on year to year basis and not in absolute terms. The safeguard against the objects of the trust being vitiated insofar as their character of 'charitable activities' is concerned, is inbuilt in the provisions of section 13(8) which was brought into effect with effect from the same point of time when proviso, to section 2(15)was introduce .....

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it the first proviso to section 2(15) but also the receipts of the assessee from such activities must exceed a specified limit. The second limb of this disability clause needs to be satisfied with respect to each assessment year. Obviously, therefore, this aspect of the matter cannot be examined at the stage of the grant or withdrawal of registration since the registration exercise is a one time exercise and not something which must be done for each assessment year separately. That is precisely .....

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(15) read with provisos thereto, is in respect of entire income of the assessee trust or institution but only for the assessment year in respect of which the first proviso to section 2(15) is triggered. (vii) If the status of registration is to be declined to an assessee only on the ground that some of the objects may be hit by the first proviso to section 2(15) but the assessee's receipts from such activities do not exceed specified threshold in a particular assessment year, the assessee wi .....

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